JOHANNESBURG - China appears to be more interested than any other big economy in investing in the African mining sector.
According to China Mining 2018, in 2011, China investors controlled only about 10 mining operations on the continent and this figure rose to at least 24 in 2018.
China’s interest in mineral resources in Africa is motivated by its continued strong growth in power, construction and industrial manufacturing sectors as well as by its declining internal mining production capacity year-on-year, due to declining ore grades, increasing labour costs and a more stringent regulatory environment.
In return, China has one of the strongest infrastructure construction abilities in the world and is best placed to help Africa to address its vast infrastructure gap. It’s no surprise that Chinese mining investors are looking to Africa to invest. Africa is home to an abundance of high-grade natural resources, from gold and oil to copper and cobalt, that can meet China's growing industrial needs.
As the largest producer of lithium cells, accounting for 70 percent of the global lithium cell manufacturing capacity, China is keen to find a stable source for low-cost cobalt, an element, along with lithium, that makes up the essential components of lithium batteries. High-grade copper is another mineral that China is lacking.
South and central Africa appear be the jurisdictions attracting the lion’s share of interest from Chinese investors. OPC Policy Centre’s statistics show that the top three countries that have benefited from China’s African mining investments are Zambia, South Africa and Democratic Republic of Congo.
By 2018, Zambia and South Africa had attracted the most mining investments from Chinese investors in Africa. This is because the region has one of the largest high-grade copper and cobalt deposits in the world and these countries are seen to be relatively stable, posing less political and social risks for Chinese investors.
Another key driver behind Chinese investors’ ambition in Africa is the enhancing of inter-governmental collaboration between China and African countries. A declaration and action plan were adopted at the 2018 Beijing Summit of the Forum on China-Africa Co-operation, which called for the further elevation of China-Africa co-operation and increased implementation of the Belt and Road Initiative (BRI) in the region. The BRI has played an important role in Chinese investment in Africa in the past decade.
Baker McKenzie’s recent BRI & Beyond Forecast, produced with Silk Road Associates, predicts an estimated $910 billion (R13.47trillion) in BRI investments in the 2020s, with sub-Saharan Africa receiving the biggest share of 25percent.
Further, Baker McKenzie research with IJGlobal, A Changing World: New trends in emerging market infrastructure, showed that China has targeted sub-Saharan Africa in recent years, both in the context of its need for natural resources and as part of the BRI. Chinese policy banks loaned $19billion to energy and infrastructure projects in the region from 2014-2017, almost half of which was in 2017.
Although there is rising concern among African sovereigns about the long-term effects on their dependence on China, overall, African countries acknowledge that they need global capital to improve their infrastructure and economy and that a partnership with China has mutual benefits.
To address the concerns, China has made it clear that it aims to work with African countries in a participative and inclusive way. In the meantime, African governments have begun building capacity to correct imbalances between borrowers and lenders in the negotiation phase.
Leo Zhang, Of counsel, and Bee Chun Boo, partner, Baker McKenzie Beijing, and Wildu du Plessis, partner, Baker McKenzie, Johannesburg.
BUSINESS REPORT